Monday, October 24, 2016

Draghi and the ECB: indecision until December

ECB: the interest rate remains at zero.

In the early hours, Mario Draghi, president of the European Central Bank, the protagonist of the day in the markets, spoke. In summary, it confirmed that the interest rate remains at zero, as does the negative rate on deposits (-0.4%). He also reiterated the continuity until March 2017 (or beyond ... that if: without any abrupt cut) of the Quantitative Easing QE, postponing to December the decision whether there will be a gradual brake (the so-called 'tapering') to this program of purchase of debt, contradicting what Bloomberg.com suggested a few weeks ago. Everything will remain the same until the last annual meeting of the ECB on December 8th: ECB buying debt at an impressive rate of 80,000M euros per month (without achieving inflation so that the desired increase, as it remains at 0.4%, far from the planned 2% being very difficult in March to reach that target) and the rate 'zero interest' will continue to grow the tremendous bubble in the bonds, the one that Draghi claims not to see (!). To read so many conjectures and diverse suggestions of the private banks on this subject, and seen the poor results obtained until today in the eurozone, it is deduced, without needing to be expert in economy, that something does not go well with the ECB monetary.

As a result, the indices of New York SPX and European stock exchanges (DAX, FTSE100, CAC40) remain almost flat with a slight tendency to fall, but without major upsets. The FXE euro, which had expected the interest rate hike, has weakened against the dollar, and at this time the EUR/USD pair falls -0.40%. Last week his fall beat the three SMA averages (50,100 and 200) and today support @1.095. With the next, almost certain, Rate Hike of the FED in December, we could reach a 1:1 euro-dollar parity at the end of the year.

Problems with the euro, two weeks above the MA, in bearish territory.

Iran decided to be excluded from the OPEC pact

Iran decided to be excluded from the OPEC pact for a output cut, currently at 4.77M barrels/day, lowering the price of Crude Oil, returning it to around $50. OPEC plans to limit the daily production of its members to 33 million. As I mentioned in a previous post, one can not trust the Arab countries when they say something, the story says, besides that they do not fulfill the agreed quotas. The problem is that this Iranian attitude, the second largest member of OPEC, can cause a domino effect in other 'complicated' countries such as Nigeria or Libya, and who also knows Russia. On November 30th they meet to decide agreements. It is expected in these weeks, high volatility of the price of oil depending on how the news comes.